Monday, August 22, 2005

tax cuts

The Lolly scramble of election time has well and truly began.
National and Labour are throwing money around of course national is greater "offender" at the moment but I expect labour with a few billion spare (comparitively) will throw out a couple more lollies.

So what should we do? well frankly from a selfish point of view - vote for the party that offers you the most for the least money. BUT keep in mind that YOU are the one paying for all of this not some imaginary third party.

the most appropriate way to think of this (unless you plan on leaving the country) is to say that every dollar of debt the country accumulates is a debt held by you in direct proportion to the rate at which you would pay tax.

So lets use the following assumptions
1) lets for the moment assume all tax is PAYE (it isnt but other taxes distribute the tax burden in a harder to explain way)
2) lets say the total tax take from PAYE is about $20 billion lets say that permits the government to break even.
3) the total cost of the national tax policy is 2.5 billion per year (give or take).
4) On this assumptiosn tax cust are average 12.5%

If this is paid by debt then this means each person accumulates their share of 2.5 billion in debt. IE if EVERYONE gets a 12.5% tax cut a person paying 8,000 in tax saves $1,000 BUT they accumulate $1,000 in debt since this is their share of the tax cut that they must repay later on (because a country cannot borrow forever).

If they however get a $2,000 tax cut and someone on a higher income gets a lower tax cut (as a percent) then it represents income redistribution and the person on the higher tax cut gets to pay more.

Well we know hte W4F policy of labour redistributes towars families on low to middle incomes. So does the national tax cut redistribute?

The national tax cuts look like they have a redistibutive component - playing around with the tax calculator they redistribute in favour of Poorer poeple. But the rich gets bigger tax cuts! I hear you say - well they do - BUT generally as a lower percentage of their tax responsibility.


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